2018 Insurance M&A outlook - The deal landscape continues to evolve - Deloitte
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2018 Insurance M&A outlook The deal landscape continues to evolve
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Contents
Overview and 2017 review 1
2018 Outlook 7
Insurance M&A drivers and trends for 2018 8
Moving forward on 2018 insurance M&A opportunities 18
22018 Insurance M&A outlook | The deal landscape continues to evolve
Overview and 2017 review
At the end of 2016, we correctly projected that 2017 insurance 2017 in review
merger and acquisition (M&A) activity would start slowly but gain Investor uncertainty leading up to and following the 2016 US election
speed in the year’s second half. Indeed, the number of insurer seemed to significantly restrain M&A through the first half of 2017
transactions announced during the second half of 2017 increased as insurers waited to see how policy and the economy would play
significantly—50 percent over the first half. The increase in broker out under the Trump administration and Republican-led Congress.
transactions was a notable 25 percent. Seven deals valued at Improved insurer stock prices as well as a scarcity of acquisition
$1 billion or more were announced—the same number as all of targets were additional factors that may have put a damper on the
2016. Both aggregate deal volume and value for insurer deals were M&A market.2
down from 2016, 13 and 32 percent, respectively. This was the
product of fewer large deals, with no announced deals reaching the July proved to be a noteworthy inflection point and the pace of M&A
$5 billion threshold.1 picked up. Despite the second-half surge, the number of insurance
underwriter deals fell by 13 percent (from 97 to 84) YOY compared
What’s noteworthy about 2016 and 2017 is an evolving industry and to 2016. Aggregate deal value was down even more—32 percent
M&A landscape that is setting the stage for a positive deal-making (from $21.7 billion to $14.8 billion). Average deal value increased 11
environment in 2018. Investor and consumer confidence is high; the percent, from $380 million in 2016 to $422 million in 2017 (figure
US and global economies are improving in a synchronized manner; 1).3 Brokerage deal volume set a new record with 537 recorded
US tax reform has been signed into law; interest rates are moving transactions and a 53 percent increase in average deal value.
in the right direction; organic growth remains elusive; and available Aggregate brokerage deal value was down, however, due to fewer
capital remains at an all-time high. And while sources of uncertainty $1+ billion transactions versus 2016.
remain, they are not currently impeding M&A activity in a material
way. Given these conditions, we expect 2018 deal volume and value
to be largely consistent with 2016 and 2017. And although we don’t
anticipate any blockbuster deals along the lines of the ACE/Chubb
transaction, we could see numerous smaller deals ($1 billion to
$3 billion) as well as a handful of $5+ billion deals as companies look
to utilize M&A to achieve their strategic objectives.
This report looks back at 2017 and examines 2018 key trends to help
insurance executives pinpoint M&A drivers and challenges, and plan
their strategy accordingly.
Figure 1. Insurance sector M&A activity, 2016-2017
Number of deals Aggregate deal value Average deal value
2016 2017 YOY change 2016 2017 YOY change 2016 2017 YOY change
Underwriters 97 84 (13%) $21.7b $14.8b (32%) $380m $422m 11%
L&H 27 31 15% $4.1b $6.6b 61% $291m $505m 74%
P&C 70 53 (24%) $17.6b $8.2b (53%) $409m $372m (9%)
Brokers 457 537 18% $7.3b $5.4b (26%) $127m $194m 53%
Total 554 621 12% $29.0b $20.2b (30%)
Source: Deloitte analysis utilizing SNL Financial M&A database
12018 Insurance M&A outlook | The deal landscape continues to evolve
In terms of aggregate value and volume, insurance M&A in 2017 •• The efficiency of global capital deployment continued to
remained largely consistent with most years since the financial crisis, improve. Relevant to insurance and across industries, the global
with the exception of 2015. Most of 2017’s transactions were on the low yield environment combined with the widespread availability of
smaller side, with only two exceeding $2.5 billion in value. One of the information and the improved means to deploy capital globally to
year’s biggest deals took place in the insurance broker space, when its highest use made it less likely to have “lazy” capital languishing
private equity (PE) firm KKR and Canadian pension fund Caisse de on balance sheets.
dépôt et placement du Québec acquired USI Insurance Services for
•• InsurTech minority investments and acquisitions
$4.3 billion.4 Other notable deals included Assurant’s acquisition
continued to increase in strategic significance, if not
of The Warranty Group for $2.5 billion;5 CF Corporation’s $1.8
deal value. Insurance companies, PE firms, and VC funds
billion acquisition of Fidelity & Guaranty Life;6 and Canada’s Intact
continued to strategize about how to buy, partner, or invest in
Financial Corporation‘s $1.7 billion purchase of US specialty insurer
digital technologies—with the primary goal of enhancing the
OneBeacon Insurance Group. Notably, two deals in the first month
performance of their core businesses.
of 2018—AIG’s announced purchase of Validus Holdings Ltd. for
$5.56 billion7 and Lincoln Financial Group’s announced acquisition •• Valuations were viewed as rich. Insurance companies were
of Liberty Life Assurance Company of Boston for about $3.3 billion more fully valued in 2017 than in 2016. While richer valuations
from Liberty Mutual8—have enabled the industry to match the total are good news for sellers, they also may make it more difficult to
number of $2.5+ billion deals for all of 2017. demonstrate to an acquiring company’s board of directors that an
acceptable ROI is feasible.
Which factors and trends influenced industry M&A—for better or
•• The US dollar declined in value by approximately 10 percent
worse—in 2017?
versus a basket of foreign currencies, effectively lowering
•• An increase in uncertainty dampened investor confidence prices for non-US buyers. A decrease in the value of the dollar
early in the year. Lack of clarity about the direction of regulatory relative to select foreign currencies increased the attractiveness of
change, prolonged uncertainty around tax and health care reform, US insurance properties as potential acquisition targets.
global geopolitical unrest, and general uneasiness about the
implications of November 2016 election results on the economy
and fiscal and monetary policy made companies more cautious
about engaging in M&A during 2017’s first half.
•• Foreign buyers remained largely sidelined, especially the
Chinese. While Chinese companies remained active shoppers in
2017, increasing deal scrutiny by US and Chinese regulators made
it more difficult to construct and close deals than in previous years,
a situation that is likely to persist in 2018.
•• New forms of institutional capital emerged. Sovereign wealth
funds, pension funds, and newly created closed-block (run-off)
specialists that have materially lower cost of capital began to make
their presence known as buyers in the US insurance space.
•• New types of noncontrol investors emerged. Wealthy
individual investors, PE firms, and venture capital (VC) funds,
sometimes working individually and sometimes as an investor
consortium, emerged prominently as willing providers
of capital—but without the need to obtain operational control of
the target.
22018 Insurance M&A outlook | The deal landscape continues to evolve
Insurance underwriters
The number of underwriter deals decreased by 13 in 2017, from that average valuations increased significantly in 2017. However,
97 to 84. The largest closed transaction during the year was valued the aggregated valuation figures are a product of very few data
at $1.9 billion—this was the lowest figure since 2013 and the points and, therefore, may not be reliable. Only four of the 53
fourth-lowest figure for any year over the past 12. Aggregate deal announced property and casualty (P&C) deals and five of the 31
value, while down from 2016, remained largely consistent with the announced life and health (L&H) deals reported price-to-book
aggregate valuation range we’ve seen going all the way back to 2006 value (P/BV) multiples.
(with the notable exceptions of 2016 and 2010). Figure 2 illustrates
Figure 2. M&A trends for insurance underwriters
Insurance underwriter transactions
Price-to-book value multiples
70,000 1.80
Aggregate deal value ($M)
1.60
60,000
1.40
Average P/BV (x)
50,000
1.20
40,000 1.00
30,000 0.80
0.60
20,000
0.40
10,000
0.20
0 0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Aggregate deal value ($M) Average P/BV
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Number of deals 84 99 95 83 107 99 98 88 82 79 97 84
Size of deals ($M)
Low 0.4 0.4 1.3 0.0 0.3 0.48 0.1 0.1 1.3 0.3 0.3 0.01
High 1,120.9 2,744.0 6,225.0 1,900.0 15,545.1 3,534.6 3,100.2 1,125.0 5,579.6 28,240.3 6,303.8 1,906.2
Average 94.1 229.5 288.9 162.0 395.6 222.5 195.5 136.4 277.3 1,317.4 379.8 421.6
Observed P/BV deal multiples
Low 0.75x 0.79x 0.48x 0.77x 0.55x 0.54x 0.31x 0.68x 0.14x 0.10x 0.18x 0.64x
High 6.19x 2.34x 2.81x 2.98x 1.70x 5.81x 5.99x 4.11x 2.83x 2.53x 4.97x 2.88x
Average 1.54x 1.63x 1.60x 1.20x 1.12x 1.24x 0.91x 1.34x 1.48x 1.45x 1.19x 1.47x
Median 1.66x 1.65x 1.59x 0.89x 1.06x 1.01x 0.81x 1.55x 1.39x 1.26x 1.14x 1.28x
Source: SNL Financial
•• Transactions represent US and Bermuda companies making acquisitions on a global basis and international buyers making acquisitions in US and Bermuda.
•• Insurance underwriters include P&C, L&H, multiline, title, mortgage guaranty, and finance guaranty sectors covered by SNL Financial.
•• Transactions grouped by the year they were announced.
•• Deal multiples represent closed multiples, unless the transaction is still pending close.
•• Outliers have been removed from the average deal multiples. Outliers include all deals with a P/BV multiple smaller than 0.5x or greater than 3.0x.
•• Analysis as of 12/31/2017.
•• SNL has noted that some numbers may not reconcile to prior years as there may be a lag between deal public announcement and disclosure.
32018 Insurance M&A outlook | The deal landscape continues to evolve
Life and health
2017 L&H M&A deal volume remained generally consistent decreased significantly in 2017. However, the aggregated
with 2016 and most years going back to 2006. And like 2016, valuation figures are a product of very few data points and,
L&H experienced far less volume than the P&C subsector. therefore, may not be reliable. Only five of the 31 announced
Scarcity of targets, a low-yield environment, and sizable bid- L&H deals reported P/BV multiples.
ask spreads all contributed to the relatively muted action. Two
relatively large deals were responsible for increasing average
deal value by 74 percent and aggregate deal value by 61
percent over 2016. Figure 3 illustrates that average valuations
Figure 3. M&A trends for life and health
Life and health transactions
Price-to-book value multiples
25,000 3.00
Aggregate deal value ($M)
2.50
20,000
Average P/BV (x)
2.00
15,000
1.50
10,000
1.00
5,000
0.50
0 0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Aggregate deal value ($M) Average P/BV
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Number of deals 26 33 25 21 28 27 30 25 17 28 27 31
Size of deals ($M)
Low 1.8 0.4 1.3 0.5 0.3 0.5 0.1 0.1 3.0 1.5 6.8 0.01
High 893.0 2,400.0 2,400.0 126.5 15,545.1 917.3 1,550.0 1,056.0 5,579.6 5,001.9 2,750.8 1,835.2
Average 92.2 227.1 188.8 28.7 1,026.2 122.3 299.6 204.6 544.5 698.8 290.7 505.3
Observed P/BV deal multiples
Low 0.75x 0.79x 1.21x 0.88x 1.06x 0.54x 0.31x 1.73x 1.29x 0.10x 0.18x 0.64x
High 2.41x 0.79x 2.28x 0.88x 1.06x 5.81x 5.99x 1.73x 1.29x 2.17x 4.97x 1.28x
Average 1.44x 0.79x 1.73x 0.88x 1.06x 1.05x 0.67x 1.73x 1.29x 1.40x 2.58x 0.99x
Median 1.17x 0.79x 1.71x 0.88x 1.06x 0.94x 0.67x 1.73x 1.29x 1.13x 2.58x 0.96x
Source: SNL Financial
•• Transactions represent US and Bermuda companies making acquisitions on a global basis and international buyers making acquisitions in US and Bermuda.
•• Transactions grouped by the year they were announced.
•• Deal multiples represent closed multiples, unless the transaction is still pending close.
•• For years 2007, 2009, 2010, 2013, and 2014 there is only one deal with data, respectively.
•• Outliers have been removed from the average deal multiples. Outliers include all deals with a P/BV multiple smaller than 0.5x or greater than 3.0x, except in 2016
•• Analysis as of 12/31/2017.
•• SNL has noted that some numbers may not reconcile to prior years as there may be a lag between deal public announcement and disclosure.
42018 Insurance M&A outlook | The deal landscape continues to evolve
Property and casualty
2017 P&C M&A deal volume was down notably from 2016—a value of deals announced. Figure 4 illustrates that average
23 percent reduction from 70 deals to 53. There were only two valuations increased significantly in 2017. However, the
P&C deals valued at $1 billion or more. They generated $3.6 aggregated valuation figures are a product of very few data
billion or 28 percent of the total value of deals announced. points and, therefore, may not be reliable. Only four of the 53
In 2016, there were four P&C deals above $1 billion, with announced P&C deals reported P/BV multiples.
aggregate deal value of $14 billion or 65 percent of the total
Figure 4. M&A trends for property and casualty
Property and casualty transactions
Price-to-book value multiples
60,000 2.50
Aggregate deal value ($M)
50,000
2.00
Average P/BV (x)
40,000
1.50
30,000
1.00
20,000
0.50
10,000
0 0.00
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Aggregate deal value ($M) Average P/BV
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Number of deals 58 66 70 62 79 72 68 63 65 51 70 53
Size of deals ($M)
Low 0.4 1.0 1.8 0.0 1.20 0.5 0.8 0.4 1.3 0.3 0.3 1.4
High 1,120.9 2,744.0 6,225.0 1,900.0 1,318.5 3,534.6 3,100.2 1,125.0 1,671.3 28,240.3 6,303.8 1,906.2
Average 95.1 230.6 323.5 196.9 145.7 266.8 148.5 110.3 199.4 1,636.1 408.8 372.2
Observed P/BV deal multiples
Low 0.92x 1.23x 0.48x 0.77x 0.55x 0.73x 0.57x 0.68x 0.14x 0.99x 0.21x 1.50x
High 6.19x 2.34x 2.81x 2.98x 1.70x 2.69x 1.52x 4.11x 2.83x 2.53x 1.45x 2.88x
Average 1.58x 1.72x 1.56x 1.30x 1.13x 1.34x 0.97x 1.24x 1.50x 1.48x 1.19x 2.08x
Median 1.66x 1.73x 1.51x 0.99x 1.06x 1.16x 0.90x 1.38x 1.43x 1.29x 1.14x 1.97x
Source: SNL Financial
•• Transactions represent US and Bermuda companies making acquisitions on a global basis and international buyers making acquisitions in US and Bermuda.
Property and casualty includes P&C, multiline, title, mortgage guaranty, and finance guaranty sectors covered by SNL Financial.
•• Transactions grouped by the year they were announced.
•• Deal multiples represent closed multiples, unless the transaction is still pending close.
•• For 2004, there is only one deal with data.
•• Outliers have been removed from the average deal multiples. Outliers include all deals with a P/BV multiple smaller than 0.5x or greater than 3.0x.
•• Analysis as of 12/31/2017.
•• SNL has noted that some numbers may not reconcile to prior years as there may be a lag between deal public announcement and disclosure. 52018 Insurance M&A outlook | The deal landscape continues to evolve
Insurance brokers
2017 broker deal volume set a new record: With 537 announced Québec’s acquisition of USI Insurance Services for $4.3 billion.
transactions it was the most active year ever recorded. Aggregate This deal represented 80 percent of the year’s total announced
2017 deal value dropped 26 percent (to $5.4 billion from $7.3 billion) deal value.9
from the previous year (figure 5). Average deal value would have
dropped as well had it not been for the one large deal in 2017: KKR
and Canadian pension fund Caisse de dépôt et placement du
Figure 5. M&A trends for insurance brokers
Insurance broker transactions
Aggregate deal value
8,000
7,000
Aggregate deal value ($M)
6,000
5,000
4,000
3,000
2,000
1,000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016
Aggregate deal value ($M)
Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Number of deals 220 267 293 183 240 304 344 239 351 492 457 537
Source: SNL Financial
•• Transactions represent US and Bermuda companies making acquisitions on a global basis and international buyers making acquisitions in US and
Bermuda.
•• Transactions grouped by the year they were announced.
•• Analysis as of 12/31/2017.
•• SNL has noted that some numbers may not reconcile to prior years as there may be a lag between deal public announcement and disclosure.
62018 Insurance M&A outlook | The deal landscape continues to evolve
2018 Outlook
We anticipate that 2018 insurance M&A aggregate deal volume and Increase in run-off transactions. The transfer of long-tail legacy
value will remain generally consistent with what we’ve experienced liabilities for companies that have stopped writing a type of business
since 2011 (with the exception of 2015) and be comprised primarily (e.g., insurance and reinsurance of asbestos, environmental,
of smaller transactions valued at less than $2 billion. That said, we do construction defects) are becoming an increasingly active and
expect to see a handful of deals announced with a value of $5 billion impactful part of the insurance M&A marketplace. The viability of the
or more given the sheer number of CEOs of large, global companies run-off business model was reinforced in 2017 when a number of
who are speaking publicly about initiatives that will either directly or highly credible investors with extensive experience in the insurance
indirectly spur strategic M&A. Below the surface of the big headline industry created entities designed to accumulate specific types of
numbers we anticipate an active insurance M&A marketplace that run-off business. This increased the capital available specifically for
will continue to evolve in a number of ways, as discussed below. this type of transaction and suggests we will see continued growth in
the market in 2018 and beyond.
L&H growth. From a subsector perspective, L&H businesses
should continue to grow through acquisition, as lagging consumer InsurTech investment. Pressure will continue to build on insurance
demand for life insurance and annuity products continues to companies to invest in InsurTech, either by acquiring a technology
inhibit organic growth. While demand remains high for acquisitions, startup, becoming a minority owner, or investing in the portfolios
especially within the group insurance space and for closed blocks of of VC/PE funds or incubators. InsurTech-oriented investments may
life and annuity business, limited supply and other constraints will have totaled only two percent of insurance companies’ invested
likely keep transaction volume muted—especially when compared capital from 2012–201712 but the need to innovate—especially from
to the P&C subsector. a digital perspective—will continue to fuel companies’ interest in
gaining access to InsurTech capabilities.
P&C impacts. 2017’s major hurricane season, West Coast forest
fires, and other catastrophes may impact P&C carriers’ 2018 income US tax reform. Comprehensive US tax reform legislation may
statements in certain markets and lines of business, but we don’t stimulate insurance M&A in 2018 and beyond by improving the
expect they will raise rates enough to materially improve margins attractiveness of the US market to foreign investors. This could
organically or lead to a significant hardening of the P&C market in create an environment where more capital will be available for
the coming year. Due to this lack of organic growth, M&A will acquisitions, and level the playing field between domestic and
continue in the P&C subsector with small-to-medium-size specialty foreign-based insurers (which previously enjoyed a competitive
carriers, in particular, as they are appealing acquisition targets, advantage through lower tax rates in their home countries).
especially for overseas players.
Change at the top. The global insurance industry has experienced
Uncertainty in reinsurance. The reinsurance market, which a lot of change at the top in the last 18 months or so. Multiple
has been dealing with persistently soft rates for almost a decade, globally prominent insurers have announced new global and/
faces significant uncertainty on whether it can secure notable rate or regional CEOs. In several cases, these individuals have spoken
increases in 2018, despite 2017 being the costliest catastrophe year publicly about their intentions to pursue initiatives that would,
on record. Increasing their rates in the wake of the various storms either directly or indirectly, stimulate M&A activity in the industry.
has not been possible for many reinsurers given a muted increase Examples include revisiting corporate strategy, reviewing business
in demand and alternative capital pouring into the sector. This portfolios to identify noncore assets or key business gaps, reviewing
dynamic has been eroding the long-term profitability of reinsurers, geographic priorities, and using acquisitions to support efforts to
reshaping the landscape, and stimulating more M&A. American digitize and/or fill specific talent gaps. Insurance M&A in 2018 could
International Group’s $5.56 billion acquisition of Validus Holdings be given a boost as these new CEOs execute plans to grow their
Ltd. in January 201810 is the most recent example of this trend. By organizations and enhance performance.
driving up the stock prices for several reinsurers after news of the
transaction became public, the market signaled its view that more
deals may follow.
Managing general agents (MGAs). Brokers interested in
alternative distribution opportunities may look to acquire digital
MGAs in 2018. MGAs are authorized to perform certain functions
ordinarily handled only by insurers—binding coverage, underwriting
and pricing, appointing retail agents within a particular area,
and settling claims11—which are attractive to small-to-medium
businesses that don’t want to buy insurance through traditional
brick-and-mortar brokers. Acquiring an MGA can be a less
expensive way for a broker to offer these services than developing
them in house. 72018 Insurance M&A outlook | The deal landscape continues to evolve
Insurance M&A drivers and trends
for 2018
Insurance company executives contemplating M&A in 2018— focused on employee benefits, asset management and protection,
whether that means selling, buying, or partnering—should consider and fee-based retail products outside of the United States;
planning for and addressing seven trends that are evolving the and Brighthouse focusing on manufacturing annuity and life
insurance M&A market over time and and may either help or hinder insurance solutions.16
their ability to execute on their plans:
Transactions of this nature are a new development for the industry
•• Modularization of the insurance value chain and are likely to become more common as the pressure to enhance
•• Tax reform and regulatory policy ROE intensifies and technology makes a wider range of strategic
•• Valuations value chain choices more possible from an operational perspective.
•• Emergence of new buyer types
•• Continued demand by foreign buyers to invest in the US market
Tax reform and regulatory policy
•• InsurTech: Buy, invest, or partner?
•• Divesting noncore business Tax reform
Congress approved and President Trump signed comprehensive
US tax reform legislation—officially known as An Act to provide for
Modularization of the insurance
reconciliation pursuant to titles II and V of the concurrent resolution on
value chain the budget for fiscal year 2018 ("the Act")—that reduces the corporate
Given the need to enhance ROE in a low-growth, low-margin tax rate from 35 percent to 21 percent effective January 1, 2018;
industry that is awash in excess capital, insurance companies are provides other tax relief for corporations, pass-through entities, and
examining their operating models and rethinking if and how they individuals; moves the US toward a participation exemption-style
play within various components of the value chain. The realization system for taxing foreign-source income of domestic multinational
that distribution, underwriting/servicing, and the sourcing of corporations; and eliminates or modifies a number of well-known
capital are separable chain components (each offering a platform business and individual deductions, credits, and incentives.17
for differentiated competitive advantage) is certainly not a new
development. However, technology is significantly enhancing the From a corporate perspective, a goal of the overhaul was to reduce
ability of organizations to specialize in only the components of the corporate tax rate and redesign the taxation of international
the value chain where they believe they can create a competitive operations to make US companies more competitive globally. To
advantage. Moving forward, we expect to see more instances of partially offset the decrease in revenue from these measures, the
transactions being done specifically to implement strategic decisions Act broadens the tax base. To that end, the bill involves substantial
around value chain participation. changes to the overall corporate tax rate structure and a host of
changes specific to the insurance industry. The latter changes, in
The distribution component of the value chain is particularly particular, will require evaluation and planning during the course of
susceptible to modularization as well as modernization. Travelers’ M&A activity. However, on a net basis, the reduction of the corporate
acquisition of UK-based Simply Business13 is a case in point. Simply tax combined with the ability to repatriate cash from overseas
Business is positioned as a technology company offering products operations at a significantly reduced rate could create additional
online on behalf of a broad panel of carriers. Its principal focus capital for strategic deployment, including through acquisitions.
is enhancing the insurance buying experience for microbusiness
owners by simplifying the small commercial insurance transaction
and making it more efficient. Travelers saw an opportunity to
potentially leverage this distribution platform in the United States as
well as other countries.
MetLife’s sale of its US retail advisor salesforce to MassMutual14
and its subsequent spin-off of Brighthouse Financial15 are other
prominent examples. MassMutual, MetLife, and Brighthouse
Financial each made deliberate value chain participation decisions
in executing the two transactions: MassMutual deepening its
commitment to exclusive distribution; MetLife becoming a
simpler, more efficient, and less capital-intensive company
82018 Insurance M&A outlook | The deal landscape continues to evolve
Aside from the corporate tax rate reduction, some of the most limitation applicable to life insurance and noninsurance NOLs.
significant tax reform provisions and their M&A implications include These various classes of operating losses are especially nuanced to
the following: the insurance industry.
A major overhaul of the international tax rules will impact •• Limitations on the deductibility of interest at a consolidated level
the global operations of many multinational insurance as well as the reduction in the corporate tax rate may result in
companies and groups. modifications to the approach for evaluating acquisition financing.
The Act further limits the deductibility of net interest expense
•• For foreign-parented groups, the Act significantly curtails—through to 30 percent of EBITDA (EBIT after 2021). Any limited interest
the new Base Erosion and Anti-Abuse Tax—the efficiency of expense is carried forward indefinitely. Generally, any business
certain business operating models having a material cross-border interest income and interest expense is considered active trade
component (e.g., reinsurance from a US direct carrier to a foreign or business interest. This provision generally allows insurance
related-party reinsurer) that is deemed to erode the US tax base. companies to fully offset their interest expense by interest
Such operating models may require substantive restructuring to income, which may mitigate the impact of the new limitation for
retain tax efficiency. many taxpayers.
•• Most significantly for US-parented groups, while the Act retains –– Note that the Conference Report explanation of the provision
subpart F (including the exception for active financing income) states that the calculation should be performed at the
and creates a new category of foreign income loosely derived consolidated tax return group level. This may impact structuring
from intangibles that generally cannot be deferred (so-called under the life/nonlife consolidated return groups that include
GILTI income), the Act also creates a new participation exemption ineligible life companies. In this situation, netting of life company
system for earnings derived by qualifying foreign subsidiaries interest income and nonlife interest expense potentially could
(income from foreign branch operations continues to be subject to be limited.
US tax on a current basis). Additionally, the Act results in changes
A few other Act takeaways of note to the insurance industry
to the tests for evaluating subsidiaries of US parents as controlled
may play a role in evaluating targets for acquisition.
foreign corporations or passive foreign investment companies.
The breadth and complexity of this international tax overhaul •• Changes to the calculation of life insurance reserves, deferred
creates a fresh opportunity to optimize global structuring, while policy acquisition costs, net operating losses, changes in basis of
also creating a need to thoroughly evaluate any M&A activities computing reserves, and changes to a company’s share of certain
between US and non-US organizations. tax-favored investments are the biggest revenue raisers relative to
the taxation of life insurance companies.
The Act also provides a number of general changes and •• Changes to reserving methodologies will impact virtually all policy
changes specific to taxation of the insurance industry, which lines, particularly decreasing the after-tax profitability of certain
will impact insurers and require evaluation during the M&A long-tail P&C lines and shorter-tail life policies with low cash
process. surrender values.
•• A reduction in the dividends received deduction for all
•• Changes to the net operating loss (NOL) carryback and carryover
corporations, coupled with changes to the life company share
rules, coupled with the retention of the complex life/nonlife
calculation and proration rules for P&C companies, will impact
insurance subgroup consolidation rules, require detailed
investment mix decisions for insurance companies of all types.
evaluation for operating loss utilization when structuring an
acquisition. The Act harmonizes the NOL rules for life companies
The insurance industry spent time evaluating the potential
and noninsurance corporations by significantly changing the
implications of tax reform over the last months of 2017, including
treatment of both. For operating losses generated in a post-2017
the impact on regulatory capital. Although stakeholders are still
tax year, life insurance and noninsurance company NOL rules
digesting in detail the impact of the Act’s specific provisions, we
provide for an unlimited carryforward period, but no longer allow
anticipate that the overall expected net positive impact of tax reform
for a carryback of losses. In addition, those NOL carryforwards
will spur activity in M&A during the first half of 2018 as companies
will be subject to an annual utilization limitation of 80 percent of
move quickly to evaluate potential acquisition targets or divestitures.
current year taxable income. However, nonlife insurance NOLs
will retain their current two-year carryback, 20-year carryforward
periods under the Act and will not be subject to the 80 percent
92018 Insurance M&A outlook | The deal landscape continues to evolve
Regulatory policy model based on a best interest standard in 2018, and New York has
already proposed its new standards, broadened to include sales of
Entering 2017, potential acquirers faced an important regulatory life insurance.22
question: If you buy an insurance company and you’re not
currently on the Financial Stability Oversight Council’s (FSOC) list of These changes could lead to increased compliance requirements,
systemically important financial institutions will the purchase make which may prompt some insurers to consider the desirability
you exceed the statutory asset threshold and put you on it? of continued engagement in some markets. In states such as
Pennsylvania, companies are already able to split blocks of business
A year later, regulators are shifting their focus from an entity’s size to for sale or runoff, and a Connecticut law23 went into effect in October
its activities as an indicator of systemic risk. This changes the focus 2017 allowing insurers domiciled in that state to do the same.24
from a domino effect, in which one institution falls and others follow,
to a tsunami effect where all institutions may be impacted by an Many insurance firms already have invested considerable money
economic event. and effort in key regulatory-related activities, such as enhancements
to risk management and compliance frameworks. Executives expect
Various regulatory entities are expected to weigh in with definitions these investments to deliver long-term business benefits regardless
of systemically risky activities, including the International Association of the specific regulations that are enacted.25
of Insurance Supervisors (which is tasked by the G-20’s Financial
Stability Board with managing global insurer systemic risk), FSOC, and Valuations
the Treasury Department. As regulators move from an exclusively
entity-based to an activities-based systemic risk management While current insurance industry equity valuations are not extreme
system, we expect to see some insurance companies divest assets to by historical standards, industry observers would likely agree that
avoid systemic risk designation. they are generally viewed as being more fully valued than they were
at this time last year. The data, however, tell a different valuation
Meanwhile, uncertainty remains about compliance demands under story. In terms of stock prices, insurance companies had a good
the US Department of Labor (DOL) Fiduciary Duty Rule for the sale of year. While not as strong as the S&P 500’s 22 percent increase,
retirement-related products. However, many insurers didn’t wait for insurers benefitted from the 2017 stock run-up (figure 6, next
fiduciary rule challenges to play out before repositioning themselves page), as illustrated by SNL’s L&H and P&C indexes increasing by
to comply. Nearly all of the 21 members of the Securities Industry 17 and 14 percent, respectively, during the year. In terms of price/
and Financial Markets Association (SIFMA) surveyed by Deloitte earnings (P/E) ratios, the S&P 500 P/E increased by nine percent to
reported making changes to retirement products in response to approximately 17.1. The P/E ratio of the L&H index lags the overall
the fiduciary rule, including limiting or eliminating asset classes and market significantly and actually decreased four percent over 2017
certain product structures.18 The study also indicated an accelerating to 12.8. The story is significantly different in P&C: The P/E ratio of
shift of retirement assets into fee-based or advisory programs the P&C index finished the year at 22.1, a significant premium to the
rather than commission-based sales.19 Some SIFMA members market and up 28 percent from the start of 2017. P/E ratios within
cited “significant operational disruption and increased costs” for most P&C subsectors are collectively approaching their highest point
compliance, and indicated they expected “additional real costs as in the past 15 years.26
well as ongoing opportunity costs,”20 even before it was announced
that implementation of some of the fiduciary rule’s components A continued upward trend for valuations in 2018 could have
would be delayed for further review until July 2019. diverging implications for insurance industry M&A: Richer valuations
may increase overall deal value for sellers (an incentive for
With lessening federal regulatory focus under the Trump companies to put properties on the market) but it also may widen
administration, state regulators may step into the breach. For existing price gaps, making offered properties less attractive to
example, larger states (California, New York) could toughen their potential buyers.
scrutiny of incoming M&A activity, especially from countries such
as China. Adding to the uncertainty around the DOL fiduciary rule,
various other regulators are addressing the issue: The Securities
and Exchange Commission (SEC) is working on its own version,21 the
National Association of Insurance Commissioners expects to issue its
102018 Insurance M&A outlook | The deal landscape continues to evolve
SNL US Insurance and S&P500 index YTD total return (%)
Figure 6. SNL US Insurance and S&P 500 index YTD total return (%)
25
20
15
Total return (%)
10
5
0
-5
7 7 7 7 17 17 17 01
7 17 7 7 7
01 01 01 01 20 20 20 01 01 01
2 2
r.
2 2 20 g.
2 . 2
v.
2 2
n. b. a r. ay ne ly pt t. c.
Ja Fe M Ap M Ju Ju Au Se O
c
N
o
De
S&P 500 SNL US Insurance L&H SNL US Insurance P&C
Source: https://platform.mi.spglobal.com/web/client?auth=inherit#markets/marketCharts?keyIndex=73SNL
Notes:
•• Data as of December 19, 2017.
•• SNL US Insurance L&H: Includes all insurance underwriters in SNL's coverage universe in the Life & Health sector whose primary shares trade on a US
exchange (NYSE, NYSE MKT, NASDAQ, OTC).
•• SNL US Insurance P&C: Includes all insurance underwriters in SNL's coverage universe in the Property & Casualty sector whose primary shares trade on a
US exchange (NYSE, NYSE MKT, NASDAQ, OTC).
•• SNL US Insurance: Includes all insurance underwriters and insurance brokers in SNL's coverage universe whose primary shares trade on a US exchange
(NYSE, NYSE MKT, NASDAQ, OTC).
112018 Insurance M&A outlook | The deal landscape continues to evolve
Rising interest rates also may impact valuations and influence 2018 Emergence of new buyer types
M&A. There was little surprise for markets when, on December
Sovereign wealth funds, pension funds, closed-block specialists, and
13, the Federal Reserve (the Fed) raised interest rates for the third
special purchase acquisition companies (SPACs) that have materially
time in 2017. The Fed also projected three more increases in 2018,
lower cost of capital are emerging as highly competitive buyers in
as most of its officials expect inflation to gradually increase in the
the US insurance space. Already prominent in Europe’s life insurance
medium term.27 Increasing rates improve insurance company
market, these investors buy books of business that insurers want
investment returns, boost stock prices, and make it easier for
to dissolve or reinsure. The process is more complicated in the
companies that are considering a transaction to model a favorable
United States due to regulatory concerns around legal and financial
economic scenario in their deal pricing.
finality and backstops for policyholders. Still, we expect the trend
to stimulate M&A going forward as an example of new buyer types
There is considerable speculation about the impact of 2017’s high
joining forces to transact deals, management seeking to improve a
incidence of major catastrophes on P&C and reinsurance market
poor ROE via M&A, and divestments to exit certain lines of business.
valuations, which have softened over time. Will the disasters raise
rates and harden the market or will an excess of available capital
For instance, an investor group led by affiliates of Apollo Global
continue to keep the market soft? If the market does harden, will
Management LLC announced in late December 2017 that they have
it generate more M&A or will companies refocus on generating
entered into a definitive agreement to buy Voya Financial Inc.’s
organic growth? A pricing reset in property-catastrophe premiums,
Closed Block Variable Annuity business.28 Smaller investors are
particularly for reinsurance, is hoped for, but we don’t anticipate any
also making similar plays. As another example, FGL Holdings
dramatic changes; in addition, P&C companies have robust reserves
(a SPAC initially named CF Corporation) announced the completion
and pension funds and other competitive buyers are injecting new
of its $1.835 billion acquisition of Fidelity & Guaranty Life in
capital into the sector.
November 2017.29 CF Corporation raised $600 million via a 2016
initial public offering (IPO), making it the largest blank check IPO in
The combination of target scarcity and full valuations can make it
over a decade.30
difficult for buyer and seller to bridge the bid-ask gap. How many
available assets take a unique approach to the marketplace and
Typical competitive buyers have neither the expertise to underwrite
would materially add to an acquirer’s portfolio to justify paying a
nor the desire to distribute, but they may be part of an investor
significant premium? Executives should have a strong, strategic
group looking to capitalize on another entity that does want to
rationale for how they are going to create incremental value for
underwrite and distribute. Or they may want to aggregate various
such deals; they also should set a payment ceiling for a business or
closed blocks, make them “lean and mean,” and divest them in a
capability, especially since a shortage of high-quality targets and
run-off deal. In fact, demand for such run-offs may exceed supply,
foreign buyers’ willingness to pay a premium may drive sale prices to
potentially leading to higher prices. That shouldn’t be a deterrent to
prohibitive levels.
these competitive players; they have plenty of investment capital, are
willing to pay more for certain assets, and may be prepared to accept
a lower rate of return in exchange for predictability. A lot of this
alternative capital is flowing into reinsurance, which investors
like for the sector’s mix of good yield, better interest rates, and
relative safety.
122018 Insurance M&A outlook | The deal landscape continues to evolve
Continued demand by foreign buyers to invest in the US market
The US insurance market continues to attract the interest of foreign is plentiful and debt is cheap.31 In fact, foreign direct investment
investors, especially Chinese and Japanese companies seeking to from all countries into the US insurance industry has increased by
diversify and grow outside their home country at a time when capital $70 billion since 2013, a 47 percent rise (figure 7).
Figure 7. US insurance foreign direct investment (FDI) position
US insurance FDI ($B)
250
$218
200
$177 $176
$164
$155 $150
$148
150
$134
($B)
$111
100
50
0
2008 2009 2010 2011 2012 2013 2014 2015 2016
($B) US insurance FDI (on a historical-cost basis)
Source: https://www.bea.gov/international/di1fdibal.htm
Industry detail (includes all industries); https://data.oecd.org/united-states.htm
We anticipate that 2018 will see a continuation of inbound M&A yuan, and the yen over the past year. And even though current
interest and activity focused more on the P&C and specialty insurance company valuations may be considered somewhat rich,
insurance segments than on L&H. Available capital remains sophisticated investors such as the Japanese are known to pay
abundant in Asian countries including China, Japan, and Taiwan. preemptive valuations for the right investment.
The US dollar has been falling relative to the euro, the pound, the
132018 Insurance M&A outlook | The deal landscape continues to evolve
Market trends also suggest the potential for heightened interest by InsurTech: Buy, invest, or partner?
European buyers as they reevaluate the role the US market will play
Although aggregate InsurTech M&A and minority investment
in their business portfolios. The scale and growth (in absolute
transactions comprised just two percent of insurance company
dollars) that make the US market attractive, combined with the
capital expenditures from 2012–2017,36 InsurTech continues to
perception of favorable trajectories in economic growth, taxes,
garner considerable industry attention, given the overall strategic
regulation, and interest rates, are triggering renewed interested in
importance of technology investments. As detailed in the Deloitte
acquisitions. In addition, a historic deterrent—valuation—is being
report, The state of the deal: M&A trends for 2018, a survey of
mitigated. Previously, any kind of material acquisition by a European
over 1,000 executives, including some insurers, reveals that
buyer likely would have had to use stock (at least partially). With the
acquiring technology assets now ranks first as a strategic driver
European economy generally depressed versus the United States,
of M&A deals.37
companies would be using underappreciated shares to buy
appreciated ones, which is quite difficult to justify financially.
In addition, insurers are increasing their focus on the technology
However, many non-US markets outperformed US markets in 2017,
and/or digital capabilities of their traditional M&A target—other
boosting underappreciated shares and renewing European interest
insurance companies—as a key driver of these transactions.
in US targets.
Insurance companies in L&H, P&C, and reinsurance—as well as PE
Still, inbound deal activity will need to overcome some hurdles
and VC funds—are strategizing how to leverage digital technologies
in 2018:
including sensors, aggregators, and business process enablers (e.g.,
•• Recent and continued interest rate increases may cause the robotic process automation) to enhance business performance and
dollar to strengthen, making deals more difficult for foreign buyers customer engagement. Underwriting and distribution are also ripe
to execute. for digitalization (see sidebar).
•• Japanese buyers are still digesting the large US purchases they
made a couple of years ago. While they likely are looking for
acquisition opportunities, they may not be ready to move into
buying mode. Digitalizing L&A underwriting and
•• The US Treasury Department’s Committee on Foreign Investment distribution
in the United States (CFIUS) and state-level regulators continue Insurers and InsurTech startups are experimenting with
to closely examine any proposed acquisition of US insurance digitalization to shorten the L&H application-to-closing
assets by Chinese companies that have not provided enough process from weeks to minutes, lower onboarding costs,
transparency into financing and ownership structures. For and minimize the consumer dropout rate. Accelerated
example, Fosun drew CFIUS’ interest after it paid more than underwriting metrics—based on digitally available medical
$2 billion for Ironshore, which owns a subsidiary that provides data, drug prescription information, and potentially even
professional liability insurance to government employees including facial analytics technology—can be used to estimate an
the Central Intelligence Agency.32 Such scrutiny can delay or applicant’s life expectancy and reduce or eliminate
even scuttle a deal. For example, China’s Oceanwide Holdings traditional medical tests.38
is proceeding with its announced $2.7 billion acquisition of US
insurer Genworth Financial, which has stalled over concerns about Digitalization may also enhance annuity and policy
Chinese access to sensitive US personal data.33 Genworth, which distribution. For example, Abaris, an InsurTech startup, has
in November 2017 extended its deadline to complete the deal to launched a direct-to-consumer online platform for deferred
April 1, 2018, and Oceanwide are working to amend the proposed income annuities. Ladder, another startup, offers
deal in hopes of winning CFIUS’ approval.34 direct-to-consumer life insurance policies within minutes,
•• For a large part of 2017, the Chinese Insurance Regulatory particularly targeting younger consumers who may often
Commission and China’s Ministry of Finance encouraged avoid purchasing such coverage because of the time it
companies to be more cautious in their outbound purchases, traditionally takes to do so.39
especially as some Chinese insurance companies were considered
to be overleveraged. This action followed the Chinese State
Council’s 2016 ban on outbound investment deals worth more
than $10 billion or M&A transactions above $1 billion if they are
not within the Chinese investors' core business.35 The Chinese
government continues to constrain outbound deals going
into 2018.
142018 Insurance M&A outlook | The deal landscape continues to evolve
Some InsurTech deals will be outright purchases, as seen in positively impact their core businesses. Figure 8 highlights the
American Family Insurance’s December 2017 acquisitions of data technologies that have attracted the most investment interest
and analytics software company Networked Insights and home during 2012 to 2017.
inspection software company HomeGauge. Via its press release,
American Family said that the acquisitions are part of an Insurance companies are realizing that investing gets them a seat at
enterprise-wide focus on investing in technology platforms, data and the table so they know what is going on in the tech space. In fact,
analytics, and artificial intelligence (AI).40 Many insurers have been insurers appear to be interacting smoothly and comfortably with
using corporate venture capital (CVC) funds to make minority InsurTech disruptors, with most recognizing these new players as
investments within the InsurTech space. We expect this trend to potential collaborators rather than competitors, and vice versa.41
continue as insurers seek to obtain capabilities and/or talent to
Figure 8. Investment in InsurTech startups across trend areas 2012–Q1 2017
Robo-advisors Drones/aerial imagery
Digital insurance $434M $63M
enablement Machine learning/AI
$251M Mobile claims
Just-in-time Virtual service reps $215M
Robotics $44M
insurance $51M
$31M
$52M
Risk/analytics
Cloud-based tech Underwriting $116M
$191M Claims
$303M
Automation of $44M Lead generation
traditional activities $16M
Cybersecurity $579M
$130M Data and analytics
Aggregators
$347M
Blockchain $509M
$68M Techology
infrastructure Distribution
Book mgmt. systems $453M $9B model Sharing economy
$64M $673M $62M
Peer-to-peer
Mobile Simplification/ Financial plan and $88M
engagements self-service investment mgmt.
$107M $3.5B $854M Direct sales channels
Sensors
$13M
$2.2B
Billing/payments Fin. advice and investment tools
$835M Driverless cars $410M
Auto
$180M $361M Automated savings/
micro investing
Health insurance/ Home $212M
group benefits $378M
$2.6B Other IoT
$58M
Crowd-based/social advice
Digital health
Stock trading $153M
$1.2B
$79M
Source: Deloitte analysis using CB Insights data. Numbers do not include companies for which funding was undisclosed.
Funding values are rounded.
Most insurers are focusing on leveraging capabilities offered by organizations. There have been many fewer examples of outright
InsurTech organizations to enhance operational efficiencies, acquisitions, as it is rare to see an innovation so unique with barriers
customer value, or revenue growth within their core businesses. of entry so high that a carrier will want to buy the startup. This may
For the most part, they’re achieving this by becoming customers change as InsurTech organizations mature their value propositions.
of and/or by making minority investments in those InsurTech
152018 Insurance M&A outlook | The deal landscape continues to evolve
Technology’s rapid evolution is also influencing insurance companies’ For insurance companies that choose to invest, trending areas
decisions whether to acquire, partner, or invest in specific include technology infrastructure, distribution models, and
capabilities. Options include: simplification/self-service features (figure 9).
•• Making outright acquisitions of InsurTech assets
Might some insurance companies decide to build versus buy? The
•• Standing up InsurTech venture funds to make an off-balance- choice is likely to be technology or product specific. If a carrier has a
sheet financial investment very specialized offering and wants to gain a first-to-market
advantage, it may elect to build; if not, partnering with a startup is
•• Making an on-balance-sheet equity investment to test/incubate
more likely.
a business opportunity or capability that may benefit the investor’s
core business
•• Making indirect investments (which may evolve into equity
investments) to work with InsurTech startups on specific
projects and proof-of-concept initiatives42
Figure 9. 2016-17 investments by trend areas and investment source
Number of companies
• Connected/driverless car (corporate)
Sensors 7 12 13 11 Home/IOT (PE/VC, insurance)
Digital health (all)
Automation of traditional activities • Robo-advisors (all)
4 19 12 4 Virtual service representatives (PE/VCs)
• Mobile engagement (insurance)
Simplification/self-service 9 17 6 5
Billing/health insurance (all)
41% • Cloud-based technology (PE/VCs, corporate)
Technology infrastrcture 11 19 4 1 Blockchain and cybersecurity (insurance)
Distribution model 10 41% 13 4 4 • Aggregators (insurance)
Financial planning and • Financial advice
investment management 6 13 7 5 Saving/budgeting
• Machine learning (all)
Data and analytics 4 8 4 3 Predictive/risk analytics (PE/VC, insurance)
Underwriting 6 3 11 • Just-in-time insurance (all)
0 10 20 30 40
Insurers (including CVCs) Other corporate
Traditional PE/VC firms Other
Source: Deloitte analysis utilizing CB Insights data. Excludes all acquisitions for which funding was not disclosed.
162018 Insurance M&A outlook | The deal landscape continues to evolve
The increasing impact of run-off
insurance deals
Insurance companies looking to unlock capital supporting
legacy liabilities are turning with regularity to run-offs. To
illustrate, 2017 saw a significant increase in insurance run-off
transactions, with deal types taking the form of complete
portfolio sales or reinsurance transactions such as loss
Divesting noncore business portfolio transfers, adverse development covers, and hybrid
solutions (figure 10).
Years ago, many insurance companies sought to grow their revenues
and customer base by casting their net wider—building and
Many run-off transactions are acquisitions themselves. Target
acquiring capabilities to amass large product and/or geographic
companies can be cleaned up ahead of the sale to increase
footprints or become more like full-service financial institutions.
valuations by removing the drag from run-off business. The
However, a lot has changed in the last decade: Competition is
run-off structures can be used in conjunction with active
tougher, regulations are tighter, the pace of technological change
company transactions to provide a buyer with the desired
continues to accelerate, customer expectations are growing, loss
portion of the business.
reserve releases are slowing, and some added services are proving
to be more burden than revenue booster. In response, many
Although run-off deals can protect a company’s balance sheet
insurance companies are considering pulling in their nets, focusing
from certain long-term, risk-attaching agreements, they don’t
on what they do best, and divesting noncore assets for both
necessarily give the seller complete finality; if the reserves
competitive and regulatory reasons.
deteriorate badly enough, the seller will remain on the hook.
Some divestments complement the modularization trend discussed
Investor interest in run-off business has been evidenced by
earlier. We can see, for example, group life companies naturally
several recent deals in which highly credible investors with
disaggregating benefits enrollment, benefits administration, and
significant experience in the insurance industry launched new
other related functions. The challenge is that many companies are
entities designed to execute run-off business models. As
wrestling with the idea of what is “core.” Do they want to focus on
mentioned earlier, a consortium of investors announced in
product selling and customer acquisition, certain specialty insurance
December 2017 that they entered into an agreement to
products, or digital-enabled customer relationship management? As
acquire the Voya Financial Closed Block Variable Annuity
insurance company growth strategies come into focus, we expect to
business. The investment was made through a newly formed
see more lines of business being shed.
standalone entity named Venerable Holdings Inc. The
investors anticipate using Venerable as a platform for an
Some insurance companies are preparing to divest assets in
ongoing effort to consolidate variable annuity blocks from
anticipation of regulatory changes to the activities-based risk
across the industry.43
designation. We also see companies changing the way they transfer
capital in preparation for tax reform. A lowered US corporate tax rate
We anticipate a continued increase in run-off deals as
may drive some divestitures of assets set up or reinsured to
companies look to unlock capital and shed “dead” businesses.
recognize revenue in Bermuda or other low- or no-tax domiciles.
Deal-making should be aided by increased investor interest in
run-off businesses and the use of new regulations in Rhode
Island and Vermont to make run-off deals cleaner.
Figure 10. Representative examples of recent P&C run-off deal activity
Company Runoff company Deal type Limit provided Reserves transferred
AIG Berkshire Hathaway Hybrid LPT/ADC $20B $7B
AmTrust Premia Hybrid LPT/ADC $1B $625M
RSA (UK) Enstar LPT NA $1.2M
QBE Enstar LPT NA $900M
Source: Deloitte, Mid-year market update: What M&A issues are reshaping the insurance industry?, August 10, 2017, accessed January 21, 2018,
https://www2.deloitte.com/us/en/pages/dbriefs-webcasts/series/financial-services/insurance.html.
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